THE PR. COMMISSIONER OF INCOME TAX vs. M/S COFFEE DAY ENTERPRISES LTD

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ITA/2/2020HC KarnatakaKAHC01050720201903 January 2023Bench: P.S.DINESH KUMAR,G BASAVARAJA5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the disallowance made by the assessee was Rs. 30.23 crores, while the dividend income was Rs. 2.50 crores. Since the disallowance made by the assessee was higher than the dividend income earned, the Court found no error in the order passed by the ITAT. The Tribunal had held that the voluntary disallowance made by the assessee met the requirements of Section 14A of the Act. The Court answered the questions of law in favour of the assessee and against the Revenue. The appeal filed by the Revenue was dismissed. The Court did not explicitly address the arguments concerning M/s Maxopp Investments Ltd. or CBDT Circular No. 5/2014, as the decision was based on the quantum of disallowance made by the assessee being higher than the dividend income.

What were the facts?

The assessee, M/s Coffee Day Enterprises Ltd., earned a dividend of Rs. 2,05,44,489/- for Assessment Year 2013-14 from its investment in M/s Mindtree Limited. The Assessing Officer (AO), invoking Section 14A and Rule 8-D of the Income Tax Act, 1961, disallowed a total sum of Rs. 35,80,69,080/-. The assessee appealed to the Commissioner of Income Tax (Appeals) (CIT(A)), who dismissed the appeal. The Income Tax Appellate Tribunal (ITAT), in its order dated 10.06.2019 in ITA No. 2820/Bang/2018, held that since the assessee had voluntarily made a disallowance of Rs. 30.23 crores, which was more than the dividend earned, the further disallowance made by the AO and confirmed by the CIT(A) was not warranted. The Revenue has filed an appeal before the High Court of Karnataka against the ITAT's order.

What were the issues?

1. Whether, on the facts and circumstances and in law, the Tribunal was right in setting aside the disallowance made by the assessing authority under Section 14A of the Act by holding that a voluntary disallowance made by the assessee meets the requirements of Section 14A, even when the conditions for invoking the section were satisfied? 2. Whether, on the facts and circumstances and in law, the Tribunal was right in not distinguishing the law applicable for investment in stock-in-trade as laid down by the Supreme Court in M/s Maxopp Investments Ltd. (2016) 402 ITR 640 (SC)? 3. Whether, on the facts and circumstances and in law, the Tribunal was right in not appreciating that CBDT Circular No. 5/2014 dated 11.02.2014 has been upheld by the Supreme Court and is binding law? Contentions: Assessee: The Revenue is required to consider the investments made and the exemption of income earned therefrom, and this position of law is not disputed by the Revenue. The disallowance made by the assessee (Rs. 30.23 crores) was higher than the dividend income (Rs. 2.50 crores), thus no error was committed by the ITAT. Revenue: The view taken by the AO applying Rule 8-D was the correct position, and therefore, the order passed by the ITAT is not sustainable.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

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ITA No. 02 of 2020 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 3RD DAY OF JANUARY, 2023 PRESENT THE HON'BLE MR JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR JUSTICE G BASAVARAJA INCOME TAX APPEAL NO.2 OF 2020 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME TAX, 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560 095. 2. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1), 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU - 560 095. …APPELLANTS (BY SRI. ARAVIND K V., SR. STANDING COUNSEL) AND: M/S COFFEE DAY ENTERPRISES LTD. NO.23/2, COFFEE DAY SQUARE, Digitally signed by RAMYA D Location: High Court of Karnataka

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ITA No. 02 of 2020 VITTAL MALLYA ROAD, BANGALORE - 560 001. PAN: AADCC 3995L …RESPONDENT (BY SRI. T. SURYANARAYANA SR. COUNSEL A/W SMT. TANMAYEE RAJKUMAR, ADVOCATES)

THE ITA / INCOME TAX APPEAL FIELD UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 10/06/2019 PASSED IN ITA NO. 2820/BANG/2018, FOR THE ASSESSMENT YEAR 2013-2014 PRAYING TO 1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 2820/BANG/2018 DATED10/06/2019 FOR ASSESSMENT YEAR 2013-14 ANNEXURE-C AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1), BENGALURU. 3. TO PASS SUCH OTHER SUITABLE ORDERS AS THIS HON'BLE COURT DEEMS FIT TO GRANT IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE INTEREST OF JUSTICE AND EQUITY.

THIS APPEAL, COMING ON FOR HEARING, THIS DAY, P.S.DINESH KUMAR J., DELIVERED THE FOLLOWING: ORDER

This appeal challenging the order dated 10.06.2019 in ITA No.2820/Bang/2018 dated 10.06.2019 passed by the

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ITA No. 02 of 2020 Income Tax Appellate Tribunal1, Bengaluru has to be admitted to consider the following questions of law: 1) "Whether on the facts and circumstances of the case and in law, Tribunal is right in law in setting aside disallowance made by assessing authority under Section 14A of the Act by holding that disallowance made voluntarily by the assessee will meet the requirements as set out in a Section 14A of the Act even though the conditions for invoking were satisfied in the case of the assessee"? 2) "Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in not distinguishing the law applicable for investment in stock in trade as laid out by the Supreme Court in the case of M/s Maxopp Investments Ltd 402 ITR 640 (SC)"? 3) "Whether on the facts and circumstances of the case and in law, Tribunal was right in not appreciating the fact that CBDT Circular No.5/2014 dated: 11.02.2014 has been in essence upheld by the Hon'ble Supreme Court and is binding law"? 2. Heard Shri. K.V. Aravind, learned Senior Standing Counsel for the Revenue and Shri. T. Suryanarayana, learned Senior Counsel for the assessee. 1 'ITAT' for short

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ITA No. 02 of 2020 3. Brief facts of the case are, assessee has made investment in M/s Mindtree Limited and earned dividend of Rs.2,05,44,489/- for AY 2013-14. The Assessing Officer2 applying Section 14A and Rule 8-D disallowed a total of sum of Rs.35,80,69,080/- Assessee preferred an appeal before the Commissioner of Income Tax (Appeals)3 and the said appeal has been dismissed. 4. The ITAT by the impugned order has held that the assessee has made a total disallowance of Rs.30.23 crores, which is more than the dividend of Rs.2.05 crores. Since, assessee has voluntarily made disallowance, it would meet the requirement of Section 14A of the Act and further disallowance made by the AO and confirmed by the CIT(A) is not warranted. 5. Shri. Aravind submitted that the view taken by the AO applying Rule 8-D is the correct position and therefore, the order passed by the ITAT is not sustainable. 2 'AO' for short 3 'CIT(A)' for short

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ITA No. 02 of 2020 6. Shri. T. Suryanarayana, submitted that the consistent view taken by the Court is, the Revenue is required to consider the investments made and the exemption of income earned there-from and this position of law is not disputed by the learned Senior Standing counsel for the Revenue. 7. In the instant case, the disallowance is Rs.30.23 crores and dividend amount is Rs.2.50 crores. As the disallowance is higher than interest earned, we find no error in the order passed by the ITAT.

Accordingly, this appeal is dismissed.

Questions of law are answered in favour of the assessee and against the Revenue.

No costs. Sd/- JUDGE Sd/- JUDGE LL List No.: 1 Sl No.: 80

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